The annual rate of euro-zone inflation may be nearing a peak, but its effects on consumer spending growth have yet to come. With nominal wage gains unlikely to offset higher prices, we still see expect weaker consumer spending growth to drive a significant economic slowdown in the quarters ahead. On the face of it, our earlier warnings about the effects of higher inflation may seem to have been overdone. HICP inflation reached a four-year high of 2% in February and yet hard data on total consumer spending growth have so far shown little evidence of a slowdown. And as energy effects are set to ease in the quarters ahead, we suspect that inflation is already very close to a peak. But we stand by our forecast for three reasons.
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